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Blog | Thursday March 17, 2022

Corporate Sustainability Due Diligence Directive: Seven Recommendations for Business

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On February 23, 2022, the European Commission released its long-awaited Proposal for a Directive on Corporate Sustainability Due Diligence (Draft Directive).¹ The directive represents a milestone in the field of corporate sustainability and business and human rights.

Although there has been consensus about the responsibility of business to respect human rights since the adoption of the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011, many companies still haven't taken the necessary steps to prevent and mitigate harm. The Draft Directive introduces mandatory human rights and environmental due diligence obligations at the EU level in the most extensive effort to date. It aims to translate the principles laid out in the UNGPs and the OECD Guidelines into legal requirements for companies. These new standards will increase legal certainty and avoid legislative fragmentation across EU member states, leveling the playing field and incentivizing action. BSR welcomes this move toward mandatory due diligence, and we look forward to seeing the Draft Directive’s potential to reshape and boost companies’ efforts to prevent, mitigate, and remedy their human rights and environmental risks.

The Draft Directive sets out obligations for companies to undertake due diligence for actual or potential adverse human rights and environmental impacts in their own operations, those of their subsidiaries, and of “established” business relationships in their upstream and downstream value chains.

Over the past 30 years, BSR has worked with companies to identify and address adverse human rights impacts, including hundreds of human rights assessments and implementation plans. Drawing on these learnings, we identify seven practical recommendations for companies to prepare for upcoming due diligence requirements in ways that strengthen respect for human rights.

Keep the UNGPs and OECD Guidelines as Your North Star

The Draft Directive takes a narrower approach than the EU Parliament’s Resolution and diverges from the UNGPs and OECD Guidelines in some respects, but it goes beyond in others. Amid regulatory uncertainty as the final text is negotiated in the EU Parliament and Council, companies should seek to comply with the UNGPs and OECD Guidelines, which underpin the Draft Directive and emerging national laws. Following these standards is the best way to future-proof your approach to due diligence in preparation for upcoming legal requirements and growing expectations across global value chains. This means all companies should conduct due diligence, in a manner proportionate to their type, size, sector, and operational context, including SMEs and financial companies.²

Connect ESG issues

BSR has long promoted a holistic approach to identifying, addressing, and reporting on human rights, environmental, and governance matters. We’re pleased to see the Draft Directive (in parallel with other EU legislation, such as the Corporate Sustainability Reporting Directive) covering both human rights and environmental impacts—noting the EU Parliament’s Resolution went even further, extending to good governance issues and corruption. Meeting these expectations will require companies to break internal siloes, improve coordination, and take more integrated approaches to risk assessment.

Engage Leadership

Aligned with broader trends toward active stewardship by boards of directors, the Draft Directive expands existing duties and creates new responsibilities for directors to oversee their company’s due diligence efforts and to consider sustainability consequences of their decisions in the short, medium, and long term. Boards will need to be actively engaged and upskilled on human rights, climate, and environmental issues that are relevant to their business. BSR's new business transformation service offering aimed at boards of directors includes practical methods like training on key sustainability topics, foresight and scenario planning sessions, and stakeholder engagement.

Map Your Value Chain

Although the Draft Directive limits the scope of due diligence to own operations, those of subsidiaries, and those of “established” business relationships in its value chain, the UNGPs and OECD Guidelines make clear that companies have a responsibility to address adverse impacts to which they are connected through all business relationships. The concept of “established business relationships,” used to limit the scope of due diligence, is taken from the French Corporate Duty of Vigilance Law but constitutes a key divergence from international standards. We recommend companies map their activities beyond established relationships—which capture only well-known partners and lasting commercial partnerships—to extended connections up and down their value chain, including supply and subcontracting chains and products and services. We need all players involved to drive effective change.

Identify and Address Your Impacts

Effective due diligence starts with identifying and assessing your human rights impacts. In line with the UNGPs, BSR’s approach to human rights assessments identifies impacts on people rather than risks to the business and assesses these based on the severity of impact on those affected. We also encourage companies to consider how impacts on people, the environment, and climate change increasingly interact and to go beyond social audits, certifications, and reliance on contract clauses, which are known to be of limited effectiveness in identifying and preventing human rights abuses in complex global supply chains.

Create Meaningful Engagement with Affected Stakeholders

The Draft Directive mentions consultation with affected stakeholders but takes a narrower approach than the UNGPs and OECD Guidelines. BSR believes that effective human rights due diligence is grounded in stakeholder engagement—especially with the most vulnerable. To effectively identify their impacts and ensure any mitigation and remediation measures address the needs of those affected, companies should meaningfully engage with affected stakeholders across their value chain, with special attention to vulnerable groups who are most likely to be negatively affected by business activities. 

Review and Strengthen Your Approach to Remedy

Access to effective remedy is a core component of the UNGPs and the OECD Guidelines. The Draft Directive requires companies to have complaints procedures and creates liability where a company fails to conduct adequate due diligence. But it currently lacks a substantive and clear obligation on companies to provide effective remedy, especially for the most vulnerable. Companies should assess the effectiveness of grievance mechanisms in place against the effectiveness criteria set out in UNGP 31 and ensure that their remediation processes address the needs of affected stakeholders and vulnerable populations. See our report on access to remedy for more insights.

Whether you’re just getting started or are more advanced in your journey, following the above recommendations and adhering to the UNGPs and OECD Guidelines will enable companies to comply with the Draft Directive and meet upcoming legal requirements at the EU level and beyond, as well as increased stakeholder expectations.

This blog is the first of a three-part series. Next time, we will take a closer look at the new directors’ duties in the context of broader changes to board accountability for sustainability matters and how to connect the dots between human rights and environmental due diligence.

¹ Human rights due diligence is a way for companies to proactively manage potential and actual adverse human rights impacts with which they are involved. It involves four core components as set out in the UNGPs and requires companies to prevent, identify, mitigate, and remedy these impacts.
² Unlike the UNGPs and OECD Guidelines, the Draft Directive only applies to large companies, thus excluding SMEs from any obligations to conduct due diligence, and limits the extent of these obligations for financial companies.

Blog | Wednesday June 12, 2024

Advancing a Just Transition: Lessons from Company Practices

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Sustainability teams face numerous internal hurdles when seeking to gain traction on advancing a just transition. Obstacles include breaking down internal silos, overcoming opposition and lack of knowledge, combatting resistance to incorporating just transition principles into policies and practices, and ensuring sufficient capacity and resources for implementation. 

The challenge to ensure a just, fair, and inclusive transition is intertwined with various agendas in environmental and social sustainability, including (but not limited to) reducing greenhouse gas emissions, adapting to climate change, protecting biodiversity, ensuring respect for human rights, and reducing inequality. Advancing a just transition requires bridging these efforts to cohesively prioritize people throughout the climate transition process.  

In our work with companies, BSR has observed that in many large, multinational companies, net-zero strategies are driven by teams of dedicated climate experts, sustainability efforts are spearheaded by sustainability program managers, and social risks and impacts are managed by social performance and human rights practitioners, with little engagement across silos. The fundamental challenge lies in aligning these distinct teams to collaborate effectively and work towards the common goal of achieving a just transition through a comprehensive, people-centric approach that harmonizes climate action, environmental protection, human rights considerations, and social equity measures. By fostering cross-functional collaboration and aligning objectives, companies can more easily address the multifaceted challenges posed by the energy transition. 

Practitioners often struggle to understand how to initiate just transition efforts, break down internal silos, get the right people engaged, and gain the internal buy-in needed to advance the agenda. Additionally, given recent regulatory changes, companies are focusing on the burdensome effort required to comply with mandatory compliance measures, which is leaving little bandwidth for other priorities. 

Working with companies to advance the just transition, we have seen that there is no one-size-fits-all approach to advancing the principles of a just transition within a business, as each company faces unique challenges and must tailor its strategy accordingly. We have, however, identified a few company actions that are successfully moving the agenda forward that may serve as inspiration or sources of learning for other practitioners working to advance just transition within their companies.  

Lessons Learned on How to Advance the Just Transition Inside a Company 

Secure an Executive Champion 

A strong executive champion who can drive the just transition agenda forward within a company has proven to be a critical success factor. Their support of just transition can complement other topics for which they are champions, such as human rights or climate justice. Companies with senior leaders, such as the CEO or a dedicated sustainability executive, that are champions of just transition are well-positioned to overcome internal resistance, resolve deadlocks, and create and maintain momentum for their just transition initiatives. Conversely, organizations that have lost executive-level champions or have yet to secure dedicated sponsorship risk stalling progress and facing challenges in gaining traction for their just transition efforts. This highlights the importance of cultivating leadership support and ensuring that the just transition imperative is firmly embedded within the organization's strategic priorities. 

Integrate Just Transition into Existing Strategies and Frameworks 

Many corporate climate transition plans fail to make a direct connection between human rights and the energy transition. Given this, some companies are exploring ways to incorporate just transition principles into their existing climate transition, net zero, energy transition, or broader sustainability strategies and frameworks.  

This integrated approach allows for just transition considerations to be woven into the fabric of the organization's overall sustainability efforts, rather than existing as a separate, siloed initiative. Companies are taking varying approaches, from developing standalone just transition strategies or position statements to integrating the principles across multiple policies and strategies. While a dedicated just transition strategy or position can provide a clear and focused commitment, integration into other strategies and frameworks has allowed some companies to align their just transition ambitions with the company’s existing efforts. A clear benefit of having just transition interwoven into other strategies is integrated communication with stakeholders (whether mandatory or voluntary).  

Once these necessary elements are in place, practitioners will be better positioned to engage in targeted communication and training to align diverse internal stakeholders and promote a more holistic understanding of how the company can support a just transition, both as a process and an outcome. As a result, many practitioners have made it their priority to target capacity building and awareness towards business lines and teams, who are on the front lines of implementing just transition efforts. 

Establish Formal and Informal Governance Mechanisms 

Embedding just transition into formal decision-making structures, such as cross-functional steering committees and working groups, can be an effective approach for driving the just transition agenda forward. These governance mechanisms bring together representatives from various functions, including sustainability, legal, procurement, human resources, and communications, fostering cross-functional alignment on just transition strategies and initiatives. However, while these formal governance structures bring together various internal functions, they typically lack regular representation from a company’s business lines. That is why, in addition to formal decision-making structures, less formal channels, such as working groups without decision-making authority, can play a useful role in building connections with and across business lines and encouraging broader discussions on just transition principles. These informal networks can help raise awareness, build understanding, gather diverse perspectives, and ensure buy-in, laying the groundwork for more formal governance processes over time. 

Leverage Successful Case Studies 

Showcasing successful own-company case studies and best practices related to just transition can be a powerful tool for building internal support and momentum. Real-world examples that demonstrate the positive impact of incorporating just transition principles – this includes but is not limited to early and transparent engagement with stakeholders, social dialogue with workers and unions, and responsible site decommissioning – can help illustrate the value and feasibility of these efforts. Companies that have leveraged compelling case studies have found success in securing additional company buy-in and have been able to drive the just transition agenda forward within their organizations. Case studies can be important in both demonstrating the business case but also offering clear insights and direction on what implementation can look like which can inform future company processes and expectations. 

Take Action 

Advancing a just transition is a challenge but one companies across sectors need to embrace. For resources on advancing a just transition visit the Just Transition Resource Platform and for guidance on planning for a just transition see BSR’s Just Transition Planning Toolkit. For support advancing the just transition within your company contact us.  

Blog | Wednesday May 10, 2023

Applying an ESG Lens to Crypto

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Cryptocurrencies continue to attract investors against the odds. How can businesses approach these opportunities in a way that maximizes their potential for empowerment and inclusivity, while guarding against significant environmental and social concerns?

We’re still witnessing the fallout of cryptocurrency exchange FTX’s collapse last November. Two crypto-focused banks in the US, Silvergate and Signature, have since buckled under heavy losses, sending crypto firms looking to banks in Switzerland for loans. While regulators rush to strip crypto of smoke and mirrors, a report from economic advisors at the White House offers the damning judgment that “crypto assets currently do not offer widespread economic benefits…[and] are too risky at present to function as payment instruments or to expand financial inclusion.”

The risks were evident before FTX filed for bankruptcy. In 2022, hackers stole over US$3 billion from crypto investors—but neither the thefts nor the exchange’s failure has proved a strong deterrent. The top cryptocurrencies also held up well in the wake of Silicon Valley Bank’s more recent collapse, while Bitcoin and Ethereum surged.

Advocates pin crypto’s resilience on the decentralized, transparent, and (in theory) auditable nature of its blockchain foundations. And while it isn’t insulated from the flaws of mainstream banking (SVB’s collapse heavily impacted Stablecoin issuer Circle, for one), it continues to attract both traders and those up against the limitations of centralized finance.

Advocates point to these theoretical advantages:

• Cheap and instant peer-to-peer transactions across borders, cutting out middlemen and supporting people in emerging markets and those dependent on remittances
• Financial opportunities for the unbanked, with potential gains for women in particular, who are less likely to have a bank account than men
• Alternative access to finance for those subject to government corruption or restrictions
• Ownership of financial assets (akin to keeping gold under your mattress) affording some protection against hyperinflation
• New fundraising sources for start-ups, again with particular gains for women-owned businesses, which receive less than 3 percent of venture capital funding.

Beyond the World’s Paywalls

While cryptocurrencies can prove as volatile as fiat, they have offered a lifeline where geopolitical challenges have cut people off from salaries and savings. Ukraine has seen an increase in crypto use with restrictions on currency cash transactions and to enable foreign donations. In Afghanistan, crypto has offered a way to pay gig workers cut off by economic sanctions, including women. In Lebanon, young people are turning to cryptocurrencies to counter dire currency depreciation and bring in money from abroad. In these extreme cases, liquidity trumps stability, while the anti-establishment roots of crypto attract those who have never known a trustworthy government.

However, the potential of crypto to drive financial inclusion where it is needed most is limited by smartphone access—particularly impacting women, who are 18 percent less likely than men to own one. Innovations might help: Sorted.Finance supports crypto wallets on basic feature phones. Its app has 4000 users, finding its largest markets in Pakistan (which has one of the highest gender gaps in phone ownership), Nigeria, and Tanzania, with usage focused on daily transactions and remittances.

Sorted's wallet supports Bitcoin and the dollar-paired stablecoins Tether (USDT) and USD Coin (USDC)—limiting the options for good reason: underprivileged people have been targeted for the rollout of crypto, only to be exposed to scams. As COO Stephen Browne explains:

“It’s against the free nature of crypto to limit a wallet, but we felt it was important to protect people from scams. Yes, Bitcoin could be hacked—but it hasn’t been since 2009. As for the stablecoins, we can’t guarantee their deposits, just as any bank account is vulnerable to theft and loss of value—but we make it clear that you transact at your own risk.”

Risks and Recommendations

Greater protections are needed to insulate all consumers from a range of risks:

• Debt and bankruptcy: One study found that trading cryptocurrencies overlaps strongly with trading high-risk stocks, while soaring loan interest rates and flash loans can expose users to exploitation and addiction.
• Access to risk-taking activities, such as drugs and gambling: Cryptocurrencies offer anonymity that can be used to fund illicit activities—although legitimate activity is growing more rapidly than criminal usage.
• Risks to minors due to weak age verification systems
• Lack of insurance provision from the likes of the UK’s Financial Services Compensation Scheme or the US Federal Deposit Insurance Corporation
• Value collapse spurred by hacks, "bank" runs, or regulation, such as China’s crypto ban

These add to well-acknowledged environmental risks: The energy demands of coin mining and minting have been a factor in bans in Iceland and China, while the US just proposed a 30 percent excise tax on the power demands of crypto mining companies.

Regulators are playing catch-up, but there is a clear opportunity for environmental, social and governance leadership from private sector players. Recommendations include:

Environment
Prioritize applications that use the coin mining method Proof-of-Stake to cut energy consumption by 99 percent compared to Proof-of-Work. Beyond this, support renewable sources to scale, look for opportunities to conserve energy and use low-carbon products, and consider partnerships such as the Crypto Sustainability Coalition, exploring how web3 technologies can drive climate action.

Social
Engage in partnerships, including with governments, to support inclusivity at every stage of design and implementation. Design for interoperability and inclusivity to maximize access and empowerment, and take a gender-sensitive approach to address crypto’s gender gap and protect women users.

Governance
Advocate for legal and regulatory frameworks to safeguard minors, marginalized communities, and other at-risk groups. Pursue standards, transparency, and accountability. In strategy setting, unite around the specific challenges you aim to solve with crypto, and seek to deliver gains across the board.

Questions to Business

• What specific challenges can you identify to which crypto can offer a solution?
• How can you support the potential of cryptocurrency to empower individuals and communities in your supply chain?
• Where can you play a role to protect the financial, social, and mental well-being of those engaged in cryptocurrency activities?

Blog | Wednesday September 3, 2025

What’s Next? Building on a Corporate-Level Human Rights Assessment

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Completing a corporate-level human rights assessment (HRA) is a significant milestone. It provides clarity on a company’s salient human rights risks across its entire value chain, helps to address stakeholder expectations, and grounds a company’s policy commitments in credible evidence. While the scope and depth of a corporate-level HRA vary depending on objectives, its value is consistent: it simplifies a complex landscape into a clear roadmap for action. It also offers a defensible rationale for prioritizing where to focus deeper due diligence, aligning with the growing expectations of investors, regulators, civil society, and human rights benchmarks. 

However, an HRA is not the finish line. It is the beginning of a process to transform insights into an ongoing due diligence cycle that delivers meaningful outcomes for people and measurable results for the business. Leading companies distinguish themselves not by completing a single assessment, but by building on it—focusing on the most severe risks, designing operating models that scale, measuring progress against defined indicators, and using grievance and remedy mechanisms as engines for continuous learning. 

This approach is increasingly codified in global standards and regulation. The UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises emphasize that due diligence must be continuous. Emerging regulations, including what was formerly referred to as the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) formalize this expectation, requiring companies to identify and assess impacts, take action, track effectiveness, and report results on an ongoing basis. 

From a Corporate-Level HRA to Action: Six Key Workstreams 

There is no single formula for what comes after a corporate-level HRA. However, based on BSR’s experience supporting companies to design and deliver robust assessments as part of broader human rights due diligence, six priority workstreams consistently emerge. These workstreams show how companies can move from a one-time assessment to a fully embedded, ongoing due diligence process—one that not only manages risk but also delivers sustained impact for people and the business. 

1. Deep-Dive Human Rights Impact Assessments (HRIA) Where it Matters Most: A corporate-level HRA helps identify where risks are most severe in the value chain, guiding targeted deep dives—by site (a country or facility), issue (e.g., forced labor, freedom of association), product/customer (high-leverage relationships), or moment in time (market entry, acquisition, supply shocks). HRIAs are carried out from the perspective of rightsholders, providing real-time insights that strengthen mitigation strategies and support effective remediation planning in line with the expectations set by the UNGPs, OECD Guidelines, and various regulatory requirements. 
2. Strategy Development: Corporate-level HRAs establish a company’s overall risk and impact profile, highlighting salient issues and management gaps. Acting on these findings requires developing a clear strategy for managing and integrating human rights into business operations, supported by short-, medium-, and long-term goals. A well-defined strategy aligns priorities, ensures sustained action to mitigate and remediate impacts, embeds changes into the business model, and builds the capacity needed to address human rights challenges effectively. 
3. Monitoring and Reporting: Following a corporate-level HRA, define goals and KPIs that align with both stakeholder and regulatory expectations. Stakeholder pressure on reporting after assessments and due diligence is growing, from regulators, investors, and beyond. Companies should therefore prepare for increased disclosure of human rights assessment outcomes, more issue-specific reports for well-defined audiences on the most severe impacts, and where appropriate, full publication of HRIAs. Those that move beyond one-off assessments to adopt a transparent, continuous due diligence approach will be best placed to meet growing reporting expectations from stakeholders and regulators alike. 
4. Integration: The findings from a corporate-level HRA should not remain on the shelf—they need to be embedded into the company’s daily operations. This means updating relevant policies, procedures, and practices, and developing targeted mitigation and remedy action plans. Beyond this, socializing these concepts and changes with relevant teams and focusing on integrating human rights considerations into day-to-day activities is a critical step for successful, long-term change. Integration turns the HRA from a one-off exercise into a living process, improving visibility over human rights risks, strengthening management, and enabling progress tracking. 
5. Training: To maximize impact, employees need the skills and knowledge to understand salient human rights impacts, identify potential issues in their daily work, and adapt to updated processes. Targeted, role-specific training raises awareness, builds capability, and ensures timely and effective responses when risks arise. 
6. Corporate-Level HRA Refresh: Plan a refresh every 4-5 years, or sooner, when there are material changes to the business that can impact the company’s footprint and risk profile.  

A corporate-level HRA is the starting point of a journey, not its end. The months after completing the assessment are critical for building momentum—continuing to engage team members that were interviewed or consulted as part of the HRA process, embedding findings into operations, establishing clear strategies, training teams, and more. This is how companies shift from a snapshot in time to a continuous, credible human rights due diligence process. 

The steps outlined above—deep-diving HRIAs, strategy development, monitoring and reporting, integration, training, and periodic refresh—are proven ways to transform insight into action. Taken together, they help companies strengthen risk management, meet rising stakeholder and regulatory expectations, and most importantly, deliver positive outcomes for people affected by business activities. 

BSR supports companies at every stage of this process. From conducting the initial corporate-level HRA to building the governance structures, tools, and capabilities needed for ongoing due diligence, BSR brings sector expertise, a global perspective, and a practical focus on solutions that teams can implement and sustain. 

For companies ready to move beyond assessment into sustained action, now is the time to set the tone, align leadership, and embed human rights due diligence into everyday business. BSR can help make that transition clear, strategic, and impactful.  

If you are considering launching a corporate-level HRA or deciding what should come next, we encourage you to reach out to BSR’s Human Rights team.

Blog | Tuesday March 28, 2017

BSR's Statement on the U.S. Administration Executive Order on Climate Change

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BSR regrets today’s executive order from U.S. President Donald Trump to dismantle the Clean Power Plan, a set of U.S. Environmental Protection Agency (EPA) policies that are intended to reduce the United States’ greenhouse gas emissions by 32 percent from 2005 levels and cut carbon pollution from the power sector by 30 percent by 2030. In combination with the administration's dramatic cuts to climate programs at the EPA and U.S. State Department, this announcement undermines policies that have stimulated economic growth, consumer savings, job creation, infrastructure investment, private-sector competitiveness, and public health.

Business Supports Climate Ambition

In the past several years, many American companies have set ambitious energy efficiency and renewable energy targets. Business has taken action because it understands the economic and environmental benefits of these steps, as well as the opportunity for innovation that the shift to low-carbon prosperity represents. The Clean Power Plan (CPP) provides a platform for these companies with reliable and resilient sources of clean energy and, in turn, generates substantial economic and public health benefits. Just 18 months ago, the U.S. federal government estimated the net economic benefits of the CPP at US$26-45 billion, with consumers set to save US$155 billion from 2020 to 2030. In addition, the CPP provides regulatory support to the clean energy economy, which, according to the U.S. Department of Energy’s Energy and Employment Report, supported more than 3 million U.S. jobs in 2016. The public health benefits are also significant. Research suggests the Clean Power Plan could prevent 3,600 premature deaths and more than 300,000 missed work and school days by cutting pollutants that contribute to soot and smog.

Finally, this order comes at a time when U.S. public concern about climate change is at an eight-year high, with Gallup reporting that 64 percent of Americans are concerned a "great deal" or "fair amount" about the issue. 

Trump's executive order puts this substantial progress at risk, but two critical factors continue to suggest that the transition to a low-carbon economy remains inevitable.

1. Clean power is the energy of choice for resilient and successful businesses and investors.

During the past two years alone, more than 500 companies with US$8 trillion of revenue, and more than 180 investors with assets under management in excess of US$20 trillion have made more than 1,000 commitments to purchase renewable energy, reduce their emissions in line with the best available science, set carbon prices, and end deforestation. Walmart, the largest company by revenue and the largest private employer in the world, committed to reduce emissions by 18 percent. In making the announcement, CEO Doug McMillon said, “We want to make sure Walmart is a company that our associates and customers are proud of—and that we are always doing right by them and by the communities they live in.”

These companies are part of a growing movement in the private sector that sees profits, job creation, competitiveness, innovation, and stewardship of the environment as a virtuous circle—one that delivers for shareholders, workers, and communities across the globe.

Companies like these are committed to clean power because it makes business sense. Many of these companies are achieving an average internal rate of return of 27 percent on their low-carbon investments. And research conducted by CDP shows that decoupling growth from carbon leads on average to a 29 percent increase in revenue alongside a 26 percent drop in emissions.

These companies recognize that renewable energy technologies, such as wind and solar, have low and stable marginal costs that are generated or purchased at or below the cost of fossil-fuel-generated power sources. This allows companies to hedge fuel price volatility and future increases in electricity rates. An increasing number of these companies are using power purchase agreements to lock in electricity prices for 10-20 years, providing cost certainty. Global investment in renewable energy power capacity in 2015, worth US$265.8 billion, was more than double the dollar allocations for new coal and gas generation (estimated at US$130 billion in 2015).

Many leading businesses have stated their clear desire to see the CPP survive. In April 2016, Amazon, Apple, Google, and Microsoft jointly submitted a brief to the U.S. Court of Appeals for the District of Columbia Circuit in defense of the Clean Power Plan. By the third quarter of 2016, these companies were the top four most valuable publicly traded companies in the world by market capitalization, accounting for more than 7 percent of U.S. GDP. The four companies have all stated clearly that the Clean Power Plan incentivized renewable energy and enabled business to reconcile duty to shareholders with care for community and planet.

Business has set a course for a low-carbon economy fueled by clean power and intends to continue that journey, irrespective of changes to U.S. federal policy.

2. The political will to act is resolute across the globe and deep within the United States.

The historic Paris Agreement on climate change brought together 196 governments to commit to deep decarbonization well before the end of this century. This commitment is already being translated into national climate policies in the form of 189 national climate action plans. Collectively, these plans provide business with the direction, confidence, and certainty it needs to make long-term investments in innovation and infrastructure.

Importantly, the plans represent more than US$13 trillion in clean energy investments over the next 15 years. This global multistakeholder consensus remains intact, despite today’s announcement, and will survive policy volatility in Washington in the coming four years. Meeting in Marrakech, Morocco, days after the U.S. presidential election, nearly 200 nations adopted the Marrakech Action Proclamation, reaffirming their commitment to the full implementation of the Paris Agreement. They have been resolute in their belief that “momentum is irreversible,” as it is “driven not only by governments, but by science, business, and global action of all types at all levels.”

In addition, other countries are increasingly assuming a leadership role in the transition to a low-carbon economy. China issued a statement that U.S. political changes would not affect its commitment to realize the ambition of the Paris Agreement. More importantly, China is moving ahead with increasing its non-fossil-fuel share of energy use to around 20 percent by 2030, reducing the carbon intensity of its economy by 65 percent, and launching a national emissions-trading system. Each year, China adds roughly the total existing electricity capacity of a large U.S. state and is the largest investor in renewable energy, spending over US$54 billion in 2013 alone.

We encourage the president to rethink today’s decision. Retreating from the Clean Power Plan injects business uncertainty where it is not needed, turns away from an innovative approach to clean energy that will create valuable new business opportunities, and is out of step with the clearly stated objectives of the most dynamic businesses in the United States and the world. 

Blog | Tuesday April 2, 2024

So, You’ve Completed a Materiality Assessment. Now What?

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Materiality assessments have long been an integral part of leading companies’ sustainability management. With the transposition of CSRD into law and the proliferation of other mandatory reporting requirements, more and more companies are taking on this important exercise.

At the same time, regulators and standard-setters continue to converge on a unified perspective of what good looks like, which has led to a rise in expectations around assessment depth and rigor. As a result, both established and newly formed sustainability teams, in partnership with colleagues across the organization, are putting a tremendous amount of effort into identifying material sustainability topics and documenting relevant impacts, risks, and opportunities (or “IROs” for short).

It is only natural that once the exercise is complete, topics have crossed the materiality threshold, and new IROs have emerged for management team consideration, teams are left wondering: “So now what?”

There are several immediate next steps that most companies should undertake for the purposes of disclosure:

1. Review Documentation.

Companies can ensure the assessment has been well documented for assurance purposes, including records of all key decisions made, scoring rationale, and supporting evidence. It is prudent for the team executing the assessment to meet with the audit and compliance functions as needed to answer any remaining questions and ensure you are well-prepared for the assurance process. If you haven’t already, consider using this moment to develop a standard operating procedure for future assessments.

2. Understand positioning. 

It is important to undertake a management review to understand current positioning vis-à-vis relevant voluntary and mandatory reporting requirements. This includes understanding the governance, policies, management systems, targets, and metrics current and planned related to each material topic.

3. Engage executive leadership and relevant board members and committees. 

Mandatory reporting requirements have clarified expectations of how sustainability is governed within an organization, including responsibilities at the board level. Boards should be prepared to sign off on assessment results and oversee sustainability performance and related disclosures. Ideally, a board champion kept relevant committees apprised of progress (e.g., dedicated ESG committee, Audit or Risk Committee) during the materiality process. If not, the board will need to be briefed on both the process and results and in some cases, training may be required to ensure sufficient understanding for effective long-term oversight.

4. Develop or clarify your reporting and communications strategy. 

The plethora of mandatory disclosure across different jurisdictions makes it even more important to understand the audience and clarify boundaries for each type of sustainability communication. Topics that are not “material” under a given law but are important to communicate for other reasons (e.g., to support employee engagement) may need to be separated from mandatory disclosures and conveyed through other communications channels. Carefully choosing where and how to communicate can help to enhance clarity, consistency, and comparability of reporting, as well as manage regulatory compliance and litigation risks. It also is important to review and align your communication internally and externally to ensure a consistent, authentic narrative that covers both alignment with your business strategy and a strong understanding of stakeholder needs and expectations.

In addition, even for companies with well-established sustainability programs, the completion of a materiality assessment offers an opportunity for strategic reflection. Companies can take this moment to explore where gaps in knowledge remain, how governance supports objectives, and whether current investments are sufficient for both the company and its stakeholders to thrive now and in the future.

At BSR we recommend companies consider these five additional activities:

1. Reflect on stakeholder engagement strategy: A materiality assessment relies on a strong understanding of both the company’s impacts on its stakeholders and stakeholder information needs. While it can be useful to engage stakeholders during this point-in-time exercise, it is equally, if not more, important to promote the kind of meaningful, ongoing engagement that ensures a real-time understanding of stakeholder perspectives. Now is a moment to reflect on how well you know your stakeholders, the effectiveness of the engagement mechanisms you currently have in place, and the way that information gained through stakeholder engagement flows throughout the organization and into the hands of decision-makers. Consider setting up a stakeholder advisory council or making an investment to map and track ongoing stakeholder interaction. Continuously surfacing, addressing, and documenting stakeholder concerns throughout the organization will make for both better management and better reporting.

2. Assess current management and residual risks: In many cases, materiality assessments focus more on inherent risks and potential impacts prior to mitigation to determine which topics are relevant for reporting. If you haven’t looked at residual risks, considering the controls you already have in place, now is the time to do so. Reflect on whether you’re comfortable with the remaining risks to people, the environment, and the business post mitigation and where you have leverage to address remaining gaps.

3. Update policies and review cross-functional governance: Did the materiality assessment surface an impact or risk that is not yet covered by your existing policies? Now is a good time for a refresh. It’s also a good moment to ensure that all topics have clear ownership and accountability for performance is well defined from day-to-day operations up through the board. Ensure risks are appropriately documented in the risk register. Reflect on whether team members have the skills required to manage and oversee the topics in question and work to fill gaps with training and/or investments in new staff.

4. Refresh targets and reconfirm roadmaps for long-term impact: The materiality assessment often leads to a better understanding of a company’s performance relative to both internal and external stakeholder expectations. The CSRD’s focus on short-, medium-, and long-term impacts requires companies to consider how performance will be managed now and in the future. This is therefore a moment to reflect on where your long-term goals and supporting targets hit the mark and where it would be helpful to refresh or establish new commitments. Have you surfaced trends or emerging issues that might merit an adjustment to your level of ambition? What are the important cross-connections between your activities (e.g., climate mitigation and equity), and how can your activities in these areas reinforce each other? Do you have targets in place that no longer seem relevant? Would it be beneficial to use a strategic foresight tool like futures scenarios to further stress test your approach?

5. Identify areas where you need to go deeper: Understanding all actual and potential impacts, risks, and opportunities across the full value chain in the short, medium, and long term is a tall order. You will inevitably discover areas where you feel you need additional data to have a clearer view of how a topic shows up for your organization. Whether you need a site-level human rights impact assessment or a better understanding of your nature impacts and dependencies, now is the time to think about filling priority gaps. The goal here is not a complete inventory of every possible risk, but rather to sharpen our focus where it matters—more deeply understanding a priority topic or gaining a greater understanding of topics that could be material depending on more information.

This is of course only a subset of the possibilities a company could choose to pursue, and there is no one-size-fits-all approach. If you still aren’t sure how to move forward or would like to discuss what’s right for your organization, please don’t hesitate to reach out to us at BSR. Wherever you are in your sustainability journey, we’d love to help!

People

Peter Herweck

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Peter Herweck leads Schneider Electric, a global leader in energy management and automation, guiding its strategy in sustainability, industrial software, and digital transformation.

He first joined Schneider’s Executive Committee in 2016, heading its Industrial Automation business. In 2018, he oversaw the merger of Schneider’s Industrial Software business with AVEVA, before becoming CEO of AVEVA in 2021. In May 2023, he assumed leadership of Schneider Electric as CEO.

Earlier in his career, Peter began as a Software Development Engineer with Mitsubishi in Japan and later moved to Siemens, where he held senior roles including Chief Strategy Officer and CEO of its Process Industries & Drives division. He has also held leadership roles across the US, China, Japan, and Europe. His expertise spans automation, digitalization, and leading complex global transformations.

Peter holds an MBA from Wake Forest University School of Business, as well as electrical and engineering degrees from Metz University in France and Saarland University in Germany. Additionally, he has completed the Advanced Management Program at Harvard Business School. 

Blog | Wednesday March 2, 2022

Mastering a Purposeful Approach to ESG Due Diligence in Mergers and Acquisitions

Preview

There’s no denying that 2021 was a year of significant growth in M&A, and global M&A activity is poised to climb even higher in the year ahead. M&A can be a tremendous tool for companies looking to adopt more resilient business strategies, but failing to account for the critical ESG elements can undermine success and lead to negative outcomes for business. Investors and regulators are placing more emphasis on corporate ESG performance and disclosure, including in M&A activity and financing terms. In addition, a lack of alignment around ESG topics (e.g., related to labor, governance, and corporate values) can substantially disrupt the post-merger integration process. As a result, interest among M&A teams in ESG is steadily growing, with requests to sustainability teams for guidance and frameworks on effectively integrating ESG considerations into standard due diligence.

To help our members meet this demand, BSR has built upon the guidance offered in our 2019 paper Key Considerations in Managing ESG Through a Merger and developed a set of simple steps that companies can follow to conduct effective ESG diligence in M&A. We hope that the guidance below will help our members to better evaluate the potential impact of ESG issues on business value while embracing purposeful sustainability leadership to better navigate these turbulent times.

Each company will need to develop its own approach to diligence that appropriately integrates ESG into each stage of the deal flow. The diligence process should help a company consider any potential impact of the merger or acquisition on their sustainability strategy and the long-term value of the combined entity. There are several basic elements to consider:

A red-flag check.

The objective of this step is to understand any major ESG-related opportunities or risks as part of the initial target identification process.

• Consider the “future fitness” of the core business and relevant assets. For example, do the target’s products and services appear to be compatible with the net-zero economy? Do they support or erode individual rights to privacy? Do they heavily rely on commodities with fragile supply chains (e.g., in conflict zones, reliant on current geopolitical conditions, or susceptible to extreme weather)? Does the business model present significant risks to human rights or a revised social contract (e.g., working hours, living wages and access to basic benefits, emerging legal requirements)?
• Conduct a media scan to understand any major ESG related risks. Searching for media coverage of human rights violations, serious privacy or data breaches, harassment, labor disputes, corruption, or environmental degradation can help to identify any major liabilities or cultural concerns that should be investigated upfront. Tools such as BSR’s partner Polecat perform big data analysis of online and social media, which are specifically focused on ESG.

A set of basic ESG governance questions.

The goal is to understand a target’s overall maturity related to ESG and ability to address current and emerging ESG issues:

• Does the company have a dedicated person or function responsible for management of ESG? What is their level of seniority? What type of oversight mechanisms govern ESG? Does the board play an active role? Is the CEO part of a regular ESG review cycle? What is the training program for the C-suite and board to understand ESG?
• Has the company conducted an assessment to determine its material ESG issues?
• Does the company have an ESG strategy or policy that addresses material sustainability topics and impacts from assessment results?
• Does the company have measurable timebound targets related to material ESG issues?
• Does the company publicly report performance on material ESG topics in line with relevant ESG reporting standards and regulatory requirements? Which regulatory frameworks for ESG disclosure is the company bound to according to jurisdiction?
• Does the company actively engage with external stakeholders, for example through an advisory group?

A shortlist of potentially material ESG topics based on industry, business model, and geography and evaluation of the inherent risk or opportunity level.

• As a starting point, review material issues identified for your own business. Complement this list of issues with information from tools like the SASB, MSCI, or GRI industry profiles in combination with a standard set of publicly available geographic indices (e.g., Transparency International’s Global Corruption Index), and industry- or topic-specific guidance from organizations like CDC.
• It may help to develop a standard list of topics reviewed in any deal (e.g., climate, human rights, and business ethics) alongside a list of possibly relevant additional topics (e.g., hazardous waste).
• Ask yourself how big the risk associated with each issue might be if it went unmanaged. Consider impacts across the full value chain, from raw material sourcing through product use and disposal across all relevant geographies.
• Be sure to take a double materiality approach that considers both possible impacts to business value and the environment, society, and economy associated with the target company.
• Consider dynamic issues that could be relevant in the next 5-10 years for the post-merger organization alongside issues for the individual business today. It may help to have a standard set of scenarios to evaluate performance across a range of possible future operating environments and to regularly monitor emerging issues.

Due diligence to understand risks and opportunities for each material topic.

Pull together an information request for the company based on material issues identified and tap experts as needed to help evaluate performance. Consider the following elements:

• Related policies and commitments: Do policies exist, and are they relevant to the new company?
• Governance: Is there clear ownership and accountability for performance?
• Performance management systems: Do management systems exist and are they certified to relevant external standards? Have goals been set, and are KPIs regularly tracked?
• Track record: Review performance data (e.g., GHG emissions), do a deeper dive on media coverage, consider litigation, and targeted stakeholder activism.

While it is ideal to have as much information as possible early in the process, in practice some of the components can come together after a deal is announced and before it is finalized. It’s worth noting that there are many reasons why M&A deals proceed even against significant ESG challenges. In fact, deficiencies in effective management can offer opportunities to create tremendous value and positive impact. Either way, it is essential to devote resources to defining sustainability strategy, governance, management, and disclosure protocols during and immediately following a merger. It is essential to have a clear and complete picture of the deal by both parties and a defined action plan to realize the potential of every business to maximize its long-term value and contribute to a more just and sustainable world.

Case Studies | Thursday March 28, 2024

Supporting Business Implementation of the UNGC Women’s Empowerment Principles

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Introduction

The United Nations Global Compact (UNGC) Network USA supports companies in doing business responsibly by aligning their strategies and operations with the Ten Principles on human rights, labor, environment, and anti-corruption. As part of this work, the UNGC Women’s Empowerment Principles (WEPs) launched the Target Gender Equality Program (TGE), a gender equality accelerator program for companies. BSR worked with the UNGC to engage TGE participants on developing a global approach to gender equality that aligns efforts to promote company-specific strategies for improving women’s empowerment across countries, brands, and teams with wider sustainability targets and strategies in mind.

Background

The UN estimates that it will take close to 300 years to achieve full gender equality at the current rate of progress. While many companies are making top-level commitments to women’s empowerment and gender equality, few have matched commitments with concrete plans integrated throughout the business.

To guide businesses on empowering women and advancing gender equality in the workplace, marketplace, and community, the UNGC and UN Women developed the WEPs in 2010. In the same year, the UNGC and UN Women worked with the Multilateral Investment Fund of the Inter-American Development Bank (IDB), and IDB Invest to develop the Women’s Empowerment Principles Gender Gap Analysis Tool (WEPs Tool).

Used by companies committed to advancing gender equality, the Tool offers a structured framework to assess practices against the seven Women’s Empowerment Principles. Each principle is accompanied by indicators and scoring criteria, with higher scores reflecting stronger commitments to gender equality. With these scores, companies can track progress, set targets, and demonstrate their dedication to stakeholders. The tool also provides resources for implementing best practices.

The Challenge

The UNGC launched the Target Gender Equality Program to assist companies in “developing and implementing corporate sustainability strategies, operations, and management practices” in line with the Ten Principles. The program consists of six modules, aiming to empower TGE cohort companies to be able to draft targets and action plans for gender equality. Companies range from small- and medium-sized enterprises to multi-national corporations.  

BSR, whose work focuses on implementing many of the Ten Principles, partnered with the UNGC in 2010 and has supported its activities in multiple ways over the last decade. Consequently, the UNGC enlisted the expertise of BSR in engaging with TGE cohort companies on gender equality.

BSR’s Response

BSR provided support for the first two TGE program modules, 1) Foundations and Frameworks and 2) Performance Analysis. These focused on defining the business case for gender equality, raising awareness of the WEPs Analysis Tool, identifying the current gaps and opportunities for companies, and how best to identify priority areas and support implementation.   

BSR’s Equity, Inclusion, and Justice (EIJ) team delivered:

• Workshops entitled Introduction to WEPs and Transition to WEPs Strategy, as well as Strategy Toolkit materials, including guidance on design, position, and roadmap strategy
• BSR’s Benchmarking Toolkit, including a template and criteria for selecting benchmark companies
• One-on-one company support sessions with TGE cohort companies, including review of WEPs results and benchmark assessments

BSR supported the 2023 TGE cohort companies in the following ways:

• Evaluation of each company’s maturity by understanding:
  • Relevant standards and frameworks for WEPs;
  • Current business strategy and management approach to WEPs; and
  • Relevant trends and potential disruptors within “peer” landscape. 
• Review of the scope of each company’s WEPs strategy to determine WEPs priorities and potential impact.
• Provision of guidance and key insights on building a robust WEPs strategy, position of company in benchmarking exercise, and how to build a strategy roadmap.  

Lessons

“The accelerator helped our team learn the skills we needed to implement this work into our own company. By meeting regularly as a group in the accelerator, it gave us the time and opportunity to learn from other outside businesses and BSR how we compare.”

-Christa Svensson, Global Sustainability Program Manager, and Monika Pabon, North America HR Manager, Tri-Marine International Pte. Ltd.

BSR observed the following learnings after engaging with TGE cohort companies:

• Joining a global community of like-minded business and expert stakeholders committed to women's empowerment helps companies take action. ​
• Having a global standard defining “what good looks like” for WEPs can help align industries and individual company commitments across leadership, workforces, marketplaces, and communities. ​
• Tools such as the Benchmark Assessments and WEPs Tool are key in understanding company performance and determining what leadership looks like. ​
• The majority of TGE companies are classified as “improvers” in the WEPs Tool results, meaning that companies are setting ambitions and applying key learnings and insights to build their own WEPs strategy.

"The workshops conducted by BSR have been instrumental in equipping our participating companies with comprehensive insights into the Women's Empowerment Principles (WEPs) and other essential gender equality concepts. The workshops on introducing the WEPs and the Transition to WEPs have played a pivotal role in equipping our companies with fundamental knowledge.

This foundational understanding has served as a cornerstone in the development of comprehensive and resilient corporate gender strategies. The implementation of the WEPs Benchmarking Tool and Guidance has been a cornerstone in solidifying our representatives' commitment to gender equality. Particularly noteworthy are the one-to-one company support sessions offered by BSR, which provided a structured platform for representatives from participating companies to seek personalized guidance on pertinent questions.

BSR's unwavering dedication to fostering gender equality is evident throughout our collaboration. Their professionalism and commitment have been manifested in every facet of the program, and the support provided thus far is deeply appreciated."

-Claudia Herbert Colfer, Head of Programming, UN Global Compact Network USA

Conclusion

More than 6,000 CEOs have signed the WEPs CEO Statement of Support. However, companies still need to take the necessary next steps to meet those commitments by implementing, monitoring, and reporting on progress toward gender equality.

Among the companies that participate in the TGE accelerator program, there are signs of progress. Globally, companies’ average score from using the tool increased to 32 percent from 28 percent, indicating increased efforts by businesses to promote gender equality. However, much of that progress is limited to company commitments. While 78 percent of companies using the tool have made a commitment to gender equality, up from 68 percent in 2020, levels of implementation, measurement, and transparency remain severely low (between 1 and 2 percent on average). This shows the need for more accelerated, urgent, and impactful change.

Companies committed to setting more ambitious targets at an accelerated pace can join the ForwardFaster Initiative of the UNGC. This initiative focuses on five key areas—including gender equality—where the private sector can collectively make the biggest, fastest impact by 2030. For companies seeking to advance gender equity within their operations and beyond, BSR offers support in strategy development based on UNGC WEPs scores, benchmarking against other peers, and bespoke services to close the gender gap.

“BSR is proud to have been a partner of the UN Global Compact from the very day it was launched. In a world where we see good but insufficient progress toward achieving the objectives in the Paris Agreement and the Sustainable Development Goals, UNGC is an important rallying point for businesses in all corners of the world.”

Aron Cramer, CEO and President of BSR

Get in Touch

This case study was written by Felicity Butler and Welela Makonnen. If your team is also interested in better understanding the human rights landscape and gender equality as well as defining target gender equity goals and strategy, please reach out to learn more.

Blog | Thursday March 4, 2021

What Business Can Expect from China's 14th Five-Year Plan

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The 19th Central Committee of the Communist Party of China (CPC) held its Fifth Plenary Sessions in Beijing in October 2020 to set the outline for the upcoming 14th Five-Year Plan (2021-2025) (14th FYP). The final version of the 14th FYP will be released at the National People's Congress in March 2021. What exactly is the 14th FYP? What are the key macro themes for the sustainability world to watch, and how will they impact business?

What is the 14th FYP and why is it particularly significant?

While every Five-Year Plan (FYP) is emblematic of its own time, the 14th FYP is particularly significant and noteworthy due to China’s impressive recovery from the pandemic, scientific and technological revolution during geopolitical tensions, and its rising profile in international affairs and role in global supply chains. Meanwhile, the time period of the 14th FYP (2021-2025) will be critical for China to lay foundation for many of its ambitious commitments, including but not limited to peaking carbon emissions by 2030 and doubling both current GDP and per capita GDP by 2035. There is no doubt that the 14th FYP will continue to steer the country’s development for the next five years.

Since 1953, four years after the founding of the People’s Republic of China, the FYPs have been the single most important guiding document. Over the last 10 years, the FYP has shifted from a political plan to policy direction for the country’s future economic and social development with strong implementation principles. And the impact of the FYP to business has become more relevant.

Published in 2016, the 13th FYP (2016-2020) put forward comprehensive and balanced development goals for the country and emphasized sustainable development through industrial upgrading, boosting domestic consumption, increasing urbanization rate, eliminating poverty, and improving environmental protection. This was the first time that China set clear sustainability goals and direction, which took root in the public as a simple phrase: "Clear water and green hills are gold and silver mountains."

Despite the U.S.- China trade war and the COVID-19 pandemic, most of the objectives outlined in the 13th FYP were achieved by the end of 2020, especially those regarding environmental protection including the “3-year Blue Sky Battle”, an action plan to improve air quality, which has shocked business operation. Other important achievements included:

• achieved economic growth and grew the middle-income population;
• accomplished environmental and ecological goals related to concentration of fine particles, carbon emissions, water quality, and the elimination of other chemical pollutants, in addition to committing to peak its emissions before 2030 and reach carbon neutrality before 2060;
• eliminated extreme poverty and lifted more than 55 million people out of penury during the period.

What sustainability themes should we expect in the 14th FYP?

The full and complete version of the 14th FYP will be launched at the National People's Congress this month. However, based on discussions in China and the documents from the Central Committee CPC’s Fifth Plenary Sessions, we know there are three major trends to watch:

1. Accelerating green economy and net-zero transition: The 14th FYP period will be the most critical time to steer the overall economic development toward China’s 2030 emission peak commitment and to lay the foundation for its green economy and 2060 net-zero goals. It is expected that environment and climate will be put firmly at the heart of the next FYP, and we also anticipate that many implementation principles and tools will be developed quickly in 2021 to steer the green transformation of key industries and push for clean energy market and solutions innovation at regional level.
   
   China will become an important market and key contributor for international businesses to achieve their climate goals, especially contributing to Scope 3 emissions reduction. This might also result in increasing collaboration opportunities between businesses and other stakeholders to build their renewable energy portfolios and Scope 3 emission reduction pathways. We expect the 14th FYP to include clear measures to guide business actions, especially regarding emission control, green energy strategy, waste management, and recycling. The sectors most likely to be affected include textile, manufacturing, transportation/logistics, agriculture, energy, and infrastructure.
    
2. Boosting domestic market through innovation and technology: In light of the challenging external macro environment and in order to continue to grow China’s national economy and personal income levels, the 14th FYP will focus on boosting the economy through strengthening "internal circulation" (domestic economic activities), accelerating industry upgrades with innovation and technology, and pushing for digitalization with increased provision of "new infrastructure" such as data centers, 5G networks, AI, and internet of things (IoT).
   
   To compete in the Chinese market, businesses will have to show a stronger commitment to innovation and digitalization. Consumer-facing brands will need to cope with and harness various digital channels for marketing, sales, consumer communication, and even product innovation. At the same time, they will need to prepare their manufacturing and research and development (R&D) for fast-changing consumer and policy demand. All of this is expected to take place in China faster than in other parts of the world.
   
   China’s overall goal is to build a well-developed nation with stronger economic power by 2035, and to do so while achieving its climate goals. In this regard, it calls for aggressive business actions to support transforming the country’s industry structure towards energy and resource efficiency. Business will need to take quick measures to transform their energy structure, embrace technology development, and marketing. This will call for business to develop a strategic plan to update their supply chain and plan for growth in tandem with this policy trend.
    
3. Improving well-being and health through enhancing social investment: On the social side, the 14th FYP will continue to improve people’s well-being and health through investing in education and healthcare, providing higher-quality employment and promoting the rural revitalization strategy. Implementation of the Healthy China 2030 vision, a plan to ensure all people in China have access to healthcare, will continue to reform the healthcare, pharmaceutical, and health insurance sectors to deliver quality products and services to people. Rural revitalization will serve as a key lever to strengthen China’s poverty relief efforts and to reduce income inequality through rural livelihood and industry development. That said, it will continue to be relevant for companies in China to enhance social investment in rural areas.
   
   China’s efforts to reduce relative poverty in order to improve overall population’s well-being through education, jobs, skill development, and better health conditions will have an impact on business. There will be opportunities across the agriculture, education, insurance, and public health sectors. Businesses in these sectors will need to develop clear strategies aligned with China’s overall innovation and technology development plan to steer business growth and impact.

All these trends are relevant and noteworthy, and businesses should pay attention over the next five years. However, the continuation of geopolitical conflicts and trade wars might jeopardize collaboration on related areas, especially stability of the supply chain when it's related to critical materials and output. It will require strong leadership from all sectors to steer these new opportunities and achieve win-win solutions for all. 

Watch this space for more as we unpack the changes, related risks, and opportunities that China’s 14th Five Year Plan will bring. BSR will continue to work on this with more in-depth research to each of the topics and their impacts on industries. Engage with us to inform your understanding and develop your China strategy.